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Bulls & Bears
This past week’s Bulls & Bears: Gary B. Smith, Exemplar Capital managing partner; Tobin Smith, ChangeWave Research editor; Scott Bleier, HybridInvestors.com president; Pat Dorsey, Morningstar.com director of stock research; Lenny Dykstra, former MLB All-Star, and Adam Lashinsky, senior writer at Fortune magazine.
Trading Pit: Tax Hike on the Rich — Good or Bad for our Economy?
Top Democrats suggesting a tax hike for the rich is on the way. Is this good or bad for the economy?
Gary B. Smith: It’s terrible. The rich provide the bulk of the capital of the economy, employ the most people, and provide research, development and innovation. All of that fuels our GDP. People make more than others. That’s the kind of capitalistic society we have. Brad Pitt is a lot better looking than me, and because of that, he gets to be with Angelina Jolie and make movies. What should we do? Pour acid on his face because he’s better looking? No! The rich already pay the most in taxes.
Adam Lashinsky: There is a very good reason that we’ve had a progressive tax policy in this country for many, many decades. We really don’t want to go back to the time of the robber barons where the richest people got all the rewards and the poorest people weren’t provided for. What we’re talking about is a tax policy that provides for the most people. It’s good for the economy to spread out the wealth and have a thriving population across the board.
Lenny Dykstra: Nancy Pelosi, D-Calif., is the Wicked Witch of the West. We have a great economy right now. She’ll reverse it without even trying. Minimum wage is making me have to sell one of my car washes. I am a small business owner and with this raise in minimum wage, I can’t afford to pay my employees.
Tobin Smith: A tax hike on the rich would be insanely bad for our economy. Two percent of Americans pay 56 percent of all the personal income taxes. That same two percent accounts for 60 percent of all discretionary spending. If you take a dollar out of the hands of this two percent, you’re taking $20 out of the economy. The Democrats who don’t understand this will cause a disaster.
Pat Dorsey: Wall Street doesn’t care whether we tax the rich more or not. There’s zero proof that tax policy has anything to do with the economy. The marginal tax rate on the highest bracket went from 29 percent to 36 percent between 1989 and 1995. Last time I checked, the late ‘90s were pretty good for the economy. It just doesn’t matter too much either way.
Scott Bleier: For 25 years, we’ve had an extraordinarily wealth creating economy and stock market. President Ronald Reagan slashed taxes and provided incentives for business. Anyone wanting a socialistic economy, which takes from the rich and gives to the poor, will create the next bear market.
Rise of Dictators: Is Wall Street Worried?
The Roman Colosseum lit up to protest Saddam’s hanging; Hugo Chavez seizing control of major companies in Venezuela proclaiming, “socialism or death;” and Vladimir Putin in Russia acting more like a Soviet premier than a democratically elected President. Is Wall Street worried about dictators making a comeback around the globe?
Pat: What worries me is that no one is worried about much of anything. Dictators, unlike regular democratic governments, have this nasty habit of doing unpredictable things. And that is when stocks get hit the hardest. When no one is worried about anything and someone does something unexpected. We have this cheery consensus on Wall Street right now, and anything unexpected from Putin or North Korea’s Kim Jong Il would have a really bad short-term effect.
Tobin: Dictators always get run out of town. History has shown us that the dictator who is the most egregious will eventually go away. This is why we don’t worry.
Adam: Hugo Chavez is going to get less powerful as the price of oil goes down. He’s also going to get more unpredictable. He’s nuts! It’s not good that he has so much control over such a big chunk of oil. The reason we have a lot of these going on is the way that the Bush administration has behaved. It doesn’t want to talk to people; it just wants to fight.
Lenny: A dirty bomb will kill this economy. That’s what puts the fear of God in me. If one of these maniacs uses a dirty bomb, the market’s done.
Gary B: I think it’s good for our economy, at least for the spirit of America. We really do well when we can focus on a single target. We don’t do so well when we have to focus on an amorphous terrorist.
Scott: Other than those involved in international investing, the market doesn’t give a hoot about these dictators. If we decide to become socialists like Chavez, it will be a big problem for our market. But I do agree with Lenny’s point that if something bad happens, all bets are off.